In a significant development, a federal judge has intervened to stop Arizona from filing criminal charges against Kalshi, a provider of prediction markets, at least for the time being. This decision comes in response to a motion filed by the Commodity Futures Trading Commission. District Judge Michael Liburdi of the District of Arizona made the ruling, stating that Arizona cannot proceed with an arraignment of Kalshi as previously scheduled. The state had announced plans to file 20 criminal charges against Kalshi for allegedly violating Arizona law by offering betting products.
The judge's ruling noted that the Commodity Futures Trading Commission has a strong case in arguing that Arizona's gambling laws are preempted by federal law, specifically the Commodity Exchange Act. As a result, Arizona proceeding with its action could potentially violate the Supremacy Clause. The temporary restraining order has been granted for two weeks, with a pending motion for a preliminary injunction that could extend this order. The judge's decision has been welcomed by the CFTC Chair, who expressed appreciation for the ruling and emphasized that using state criminal law against companies complying with federal law sets a concerning precedent.
The CFTC has been arguing that prediction markets, also known as event contracts, fall under its supervision as swaps, and thus are subject to federal regulation rather than state law. This viewpoint has seen mixed results in court, with state courts often siding with states and federal courts producing different outcomes. The Ninth Circuit Court of Appeals is set to hold a hearing on a consolidated case involving various providers, which will allow them to present their arguments.